Ali v. Vehi-Ship, LLC

Rashida Ali, Niquela Cole, Kevin Collins, Gary Norman, Lashawnda Renfroe, and Lisa Torry, Plaintiffs, v. Vehi-Ship, LLC, Defendant.

Case No. 17 CV 02688

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

November 27, 2017

Judge Edmond E. Chang

MEMORANDUM OPINION AND ORDER

Who decides the question of who decides? That cryptic question is central to this case, where the parties dispute whether the case must be arbitrated instead of litigated in federal court. The Plaintiffs sue their former employer, Vehi-Ship, for failing to pay minimum wage and overtime in an alleged violation of the Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq. and the Illinois Minimum Wage Law, 820 ILCS 105/1 et seq., and for deducting expenses from their wages in alleged violation of the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et seq.¹ R. 6, First Am. Compl.² Because those statutes only protect employees, the Plaintiffs ultimately must prove that they really were employees rather than independent contractors. But each contract that the Plaintiffs had with Vehi-Ship says they were independent contractors. And the form contract has an arbitration clause. Wantingto enforce the arbitration clause, Vehi-Ship moves to dismiss the complaint for improper venue under Federal Rule of Civil Procedure 12(b)(3). R. 19, Def.'s Mot. to Dismiss. The Plaintiffs say the arbitration clause is unenforceable and, in any event, inapplicable to their statutory claims.

Today's question is narrow: is it the court or an arbitrator who should decide the validity and scope of the parties' arbitration agreement in this case? For the reasons that follow, the Court concludes that it is a question for the arbitrator.

I. Background

Because this is a motion to dismiss under Rule 12(b)(3), the usual rule applies: all well-pleaded facts in the complaint are accepted as true. Marzano v. Proficio Mortg. Ventures, LLC, 942 F. Supp. 2d 781, 787 (N.D. Ill. 2013). Vehi-Ship, as its name suggests, is in the business of moving cars. First Am. Compl. ¶ 16. The Plaintiffs are former Vehi-Ship drivers; their job was to drive Vehi-Ship customers' cars to and from requested destinations. Id. ¶ 18. From day one on the job, Vehi-Ship had each Plaintiff sign an "Independent Contractor Operating Agreement." Id. ¶ 19. Vehi-Ship told them to "sign the contact on the spot or they would not be permitted to start work." Id. Each did as they were told. Def.'s Mot. to Dismiss ¶ 2.

Although Vehi-Ship's website says its drivers are at the "core" of its business, the Plaintiffs say they were relegated to the periphery. First Am. Compl. ¶ 38. They allege a catalogue of unfair employment practices that took place during their time as Vehi-Ship drivers, starting with Vehi-Ship "intentionally misclassif[ying]" themas independent contractors when they were really employees.³ Id. ¶ 2. The dollars-and-cents impact is that the Plaintiffs say they were paid too little: they allege Vehi-Ship did not pay the minimum wage and overtime that employees are entitled to under federal and state labor laws. Id.

For now, Vehi-Ship's response is that the Plaintiffs have come to the wrong forum and so the complaint should be dismissed for improper venue under Rule 12(b)(3). Def.'s Mot. to Dismiss ¶ 10. Vehi-Ship points to arbitration and choice-of-venue clauses in the Agreement. Id. ¶ 3. In relevant part, the arbitration clause says that disputes arising out of the Agreement are subject to arbitration under the rules of the American Arbitration Association:

9.3 Arbitration. The parties herein agree that any claim, dispute or controversy arising out of, effecting, interpreting or purporting to enforce this Agreement, or any matter in which the breach of this Agreement is alleged, or the enforcement of any legal or equitable right that allegedly arising out of or because of this Agreement, shall be resolved on an individual basis and not as part of any class action exclusively between Contractor and Company by submitting the dispute to binding and final arbitration to be conducted in Dallas County, Texas pursuant to the Commercial Arbitration rules and procedure as set forth under American Arbitration Association ("AAA") ... .

R. 19-1, Def.'s Mot. to Dismiss, Exh. A, Agreement ¶ 9.3 (emphases added). And the choice-of-law and venue clause says:

9.4 Choice of Law and Venue. This Agreement shall be governed, construed, and interpreted by the laws of the State of Texas. Venue for any dispute between the parties shall be in arbitration in Dallas County, Texas. THE PARTIES EXPRESSLY AGREE THEY HAVE, BY EXECUTING THIS AGREEMENT, WAIVED THEIR RIGHTS TO FILE SUIT OR SEEK RELIEF IN ANY STATE COURT, FEDERAL COURT, OR COURT OF A FOREIGN NATION AND SHALL NOT JOIN AS A PLAINTIFF IN ANY CLASS ACTION, OR SIMULAR PROCEDURE, ARISING FROM, OR RELATING TO, THIS AGREEMENT.

Def.'s Mot. to Dismiss, Exh. A, Agreement ¶ 9.4 (capitals in original). The Plaintiffs have two responses to these clauses. First, they argue that the clauses are unenforceable because they purport to waive their right to collective action in violation of the National Labor Relations Act (NLRA), 29 U.S.C. §§ 151, et seq. R. 20, Pls.' Resp. Br. at 4. Second, they argue that even if the arbitration clause survives NLRA scrutiny, it does not apply because statutory wage claims are beyond its scope. Id. at 8.

II. Analysis

Under the Federal Arbitration Act (FAA), a written agreement to arbitrate is "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The FAA was intended to respect parties' agreements to arbitrate and "put arbitration on a par with other contracts and eliminate any vestige of old rules disfavoring arbitration." Stone v. Doerge, 328 F.3d 343, 345 (7th Cir. 2003). If contracting parties have a valid arbitration agreement and if the asserted claims in a lawsuit are within its scope—and those are the big ifs here—then arbitration must be enforced. 9 U.S.C. §§ 3-4; Sharif v. Wellness Int'l Network, Ltd., 376 F.3d 720, 726 (7th Cir. 2004). Where an arbitration clause requires arbitration outside a federal court's district—like theone here does, in Texas—a motion to dismiss for improper venue under Rule 12(b)(3) is the proper procedural vehicle to enforce arbitration. Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d 801, 808 (7th Cir. 2011).

A. Questions of Arbitrability

Arbitration is required when (1) there is a valid written agreement to arbitrate; and (2) the asserted claims fall within the scope of the arbitration agreement. Zurich Am. Ins. Co. v. Watts Indus., Inc., 417 F.3d 682, 687 (7th Cir. 2005). The Plaintiffs dispute both: they argue that the Agreement's arbitration clause is invalid and, in any event, does not cover their statutory claims. Pls.' Resp. Br. at 4, 8. In response, Vehi-Ship argues that the Plaintiffs' invalidity path is blocked by the Agreement's Independent Contractor clause. R. 21, Def.'s Reply Br. at 5. That clause, Vehi-Ship's argument goes, cuts the Plaintiffs off at the pass because it means that the federal and state statutes invoked by the Plaintiffs do not protect them, because they are not employees. Id. at 7-8. A contrary determination that the Plaintiffs were actually employees would not only "effect" the Agreement (one of the words used in the arbitration clause, Def.'s Mot. to Dismiss, Exh. A, Agreement ¶ 9.3, but "essentially invalidate" it. Def.'s Reply Br. at 6. Vehi-Ship thus concludes that the arbitration clause applies because this is a dispute "effecting" and "interpreting" the Agreement. Id. at 10.

Ultimately, Vehi-Ship has the better of the argument to the "perennial question" of the "division of labor between courts and arbitrators," Janiga v. Questar Capital Corp., 615 F.3d 735, 741 (7th Cir. 2010)—but for a different reasonthan proffered by Vehi-Ship. It is for the arbitrator to decide who decides the Plaintiffs' invalidity and scope arguments not because these arguments "effect" the Agreement,⁴ but because, as is explained below, the parties committed threshold questions of arbitrability to arbitration.

Usually, it is for courts to decide "gateway matters, such as whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy." Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003); see also Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 300 (2010) ("[O]ur precedents hold that courts should order arbitration of a dispute only where the court is satisfied that neither the formation of the parties' arbitration agreement nor (absent a valid provision specifically committing such disputes to an arbitrator) its enforceability or applicability to the dispute is in issue."). In other words, questions of arbitrability are generally for courts to decide. AT&T Techs. v. Communs. Workers of Am., 475 U.S. 643, 649 (1986). But the general rule is displaced when there is "clea[r] and unmistakabl[e] evidence" that the parties agreed to arbitrate arbitrability. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (quoting AT&T Techs., 475 U.S. at 649). Gateway arbitrability issues can be committed to an arbitrator through a delegation clause. Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68(2010). A delegation clause is simply an "additional, antecedent agreement" to arbitrate threshold issues. Id. at 69.

Here, the arbitration clause in the Independent Contractor Agreement incorporates by reference the Commercial Arbitration Rules of the American Arbitration Association. Def.'s Mot. to Dismiss, Exh. A, Agreement ¶ 9.3. Rule 7(a) of the AAA Rules empowers an arbitrator to decide the gateway arbitrability issues of validity and scope of the arbitration clause.⁵ It says:

R-7 Jurisdiction

(a) The arbitrator shall have the power to rule on his or her own jurisdiction, including any

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